High Crude Prices Increase Aviation Fuel By 121.4% To N620/Litre

The price of aviation fuel has increased by 121.4 per cent to N620 per litre in June 2022, from N280 per litre in the corresponding period of 2021, due mainly to the rising price of crude oil in the international market.

The price of crude, currently hovering at $128 per barrel, had stood at about $70 per barrel then, thus costing refiners less to process it into aviation fuel, a deregulated product, that is imported from the global market.

Investigations has showed that the current rise in crude oil prices, which is also fuelled by the Ukraine-Russian war, sanction on Russian oil, market instability and speculation, has increased their cost of operations.

Consequently, oil refining companies now incur additional cost in the process of buying and processing crude into aviation fuel, which they pass in form of high prices to airline operators.

Checks has showed that airline operators have also increased their flight rates to cover the rising cost of operations and make profit.

For instance, Ibom Air charged N50,000 for its economy class from Lagos to Uyo before now, but last Monday, the airline charged N86,000 from Uyo to Lagos.

Commenting on the development, a Lagos-based transport analyst, who pleaded anonymity, said: “Many air passengers have shifted to road transportation, which operators charge lower rates. For instance, it cost only N12,000 to travel to Uyo from Lagos by road.

“On the other hand, there are no fixed rates at the moment. Airlines charge different rates, depending on the demand and supply of passengers. They slash the rates in times of low patronage, but increase when there is a surge in demand.”

Aviation Fuel Driven By High Demand – MOMAN

In an interview the chairman, Major Oil Marketers Association of Nigeria (MOMAN) Mr. Olumide Adeosun, who confirmed the rise in the price of aviation fuel, said: “There is a higher demand for aviation fuel and other middle distillates due to increased air travel.

“With supplies (about 40 per cent of global supply) out of Russia down due to sanctions, the middle distillates prices are rising at a much steeper rate than other products such as petrol.”

Similarly, former Chairman of MOMAN and Chairman, 11 Plc, Tunji Oyebanji, said lack of foreign exchange remained another major challenge facing the industry.

He said: “As you know, Nigeria is foreign exchange-challenged. So, getting enough foreign exchange is a big problem. We struggle to get the amount of foreign exchange we need to import, and for us, when we want to import either aviation fuel (AGO) or raw materials, we use in blending our lubricants, it requires a huge amount of foreign exchange.”

Oyebanji added that he had offered to help by bringing down the cost, selling to airlines at N480/litre. However, prices soon shot up after his six million litres’ stock got exhausted.

Lack of Refineries – Expert

Commenting on the development, an Energy Partner at Bloomfield Law Practice, Ayodele Oni, stated that rising crude oil prices had positive and negative implications for Nigeria as a country.

He said: “The positive aspect is that our revenue increases. Looking at the crude oil benchmark in Nigeria’s budget, it is obvious that we will earn much more than we expected but the setback is that we are not refining crude in the country at the moment, as the four refineries are still under rehabilitation.

“With this situation, we will spend more on importation of refined products and the subsidy payment will also increase substantially, which is a big problem for us. This development will affect our income, revenue and also increase our expenditure.”

Market Forecast

Investigation showed that the price of aviation fuel would continue to rise in the coming months due mainly to the prolonged crisis in Ukraine, currently fuelling instability in the market.

It also showed that oil prices would not drop significantly, due to the efforts of the Organisation of Petroleum Exporting Countries, OPEC, to achieve stability.

Intervention

Airlines, under the aegis of Airline Operators of Nigeria, AON; Nigerian National Petroleum Company Limited, NNPC, the Central Bank of Nigeria, CBN, and relevant regulators had reached an agreement to end volatility in the price of Jet A1 fuel.

The agreement was brokered by the leadership of the House of Representatives in May, 2022.

The parties had agreed that the airline operators should get trusted marketers that will distribute the over six million liters of fuel guaranteed by the government. This arrangement is the short-term solution for the next three months.

Airlines React

Ibom Air had recently disclosed in a statement: “We have encountered a situation today where aviation fuel is scarce and, therefore, unavailable at almost all our flight destinations. This has significantly impacted our flight schedule today and may do the same tomorrow.

“We sincerely apologize to all our passengers affected by the current situation. At this time, we have no indication when the issue will be resolved. However, we are working with our fellow airlines and fuel suppliers to find a solution.”

Arik Air had also said: “Nigeria airlines are currently experiencing an acute scarcity of Jet A1 and this situation is having a serious impact on our operations.